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CS Executive · Company Law and Practice · Debt Instruments - Concepts

Vindhya Steels Ltd has issued secured debentures under a trust deed. The debenture trustee concludes that the company's assets are likely to become insufficient to discharge the principal when due. What step does the Companies Act, 2013 empower the trustee to take?

The trustee may file a petition before the Tribunal. After hearing the company and other interested persons, the Tribunal may impose restrictions on the company incurring further liabilities as necessary to protect debenture-holders. The trustee cannot directly sell assets, remove directors or force a share issue.

  1. ASell the company's assets directly without any court or Tribunal order
  2. BFile a petition before the Tribunal, which may restrict the company from incurring further liabilities in the interests of debenture-holdersCorrect
  3. CRemove the Board of directors and appoint administrators
  4. DDirect the company to issue fresh shares to the debenture-holders

Explanation

Under Section 71(9), if the trustee concludes that assets are or are likely to become insufficient to discharge the principal when due, he may petition the Tribunal. After hearing the company and other interested persons, the Tribunal may impose restrictions on incurring further liabilities as it considers necessary. The Act gives the trustee no power to sell assets or remove directors on his own.

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